COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 81/LM/Aug05
In the large merger between:
Sanlam Limited
and
African Life Assurance Company Limited
Confidential Reasons for Decision
________________________________________________________________
APPROVAL
On 21 October 2005 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Sanlam Limited and African Life
Assurance Company Limited in terms of section 16(2)(a). The reasons for the
approval of the merger appear below.
The Parties
1. The acquiring firm is Sanlam Limited (“Sanlam”), or “a wholly owned
subsidiary of Sanlam Limited”, which will probably be Sanlam Life
Insurance Limited (“Sanlam Life”). The acquiror is a public company listed
on the life assurance sector of the JSE. Its ordinary share capital is held as
to 8% by UbuntuBotho Investment Limited. An additional number of
Sanlam’s “A” deferred shares can be converted into a shareholding of
approximately 2% in the issued capital of Sanlam.
2. On 1 January 2005, Sanlam acquired 55% of the issued share capital of
Safrican Insurance Company Limited (“Safrican”). The activities of Safrican
will be counted along with those of Sanlam for the purpose of this merger
analysis.
3. The primary target firm is African Life Assurance Company Limited (“African
Life”). This is also a listed company in the life assurance sector of the JSE.
The two principal shareholders of African Life are Sanlam Group, as to
20.5%, and Momentum, as to 33.4%. 1
The Merger Transaction
4. In terms of this transaction, Momentum is selling its 33.4% stake in African
Life to a new majority shareholder to be owned by African Life's
management and Sanlam Limited. The new entity is buying the entire
issued ordinary share capital of African Life (other than those ordinary
shares already held by Sanlam Limited in its shareholders’ funds, the
African Life ordinary shares held by the African Life Employee Shareholders
Scheme Trust and the African Life ordinary shares held as treasury shares
by subsidiaries of African Life).
5. The transaction is being implemented in terms of section 311 of the
Companies Act, No. 61 of 1973. Postmerger, African Life will delist from
the JSE and become a whollyowned subsidiary of Sanlam Limited. The
merging parties state that their initial intention is to retain the African Life
brand and run this as a separate operation within the life insurance cluster,
with a focus on the entrylevel market. 2
Rationale for the Transaction
6. Sanlam wishes to penetrate the entrylevel or emerging market and
is attracted by African Life’s existing distribution channel into this market.
The transaction will enable it to offer its products to a broader base of
clients. This transaction further provides a diversification opportunity for
Sanlam throughout Africa. Furthermore, Momentum seeks to exit its
investment in African Life. African Life will in turn use Sanlam’s financial
resources to accelerate the growth of its business. The merging parties
describe their activities as complementary to each other.
The relevant product and geographic markets
The relevant product and geographic markets
7. Sanlam’s activities can be divided into four groupings or “clusters”.
The activity that concerns us in this merger is the life insurance cluster.
Within this cluster, Sanlam provides longterm insurance.
8. Safrican’s activities are described as being complementary to those of
African Life. According to the merging parties, Safrican is a small player
with a small proportion of annual premiums. It offers “compulsory” or group
1 In a separately notified transaction, African Limited is selling its shares in African Health to Momentum
Group Limited.
2 See record page 432
scheme cover, whereas African Life offers individual cover. The parties
state that postmerger, Safrican will retain its separate identity.
9. Both parties offer individual and group life assurance
products.3 The parties therefore offer the following longterm
insurance products and services which are provided on a national
basis:
Assistance policies
Disability policies
Fund policies
Health policies
Life policies
Sinking fund policies
Linked policies
Endowments
Annuities
Combinations of any of the above
10. The merging parties state that insofar as they focus on distinct customer
segments, they do not compete. African Life is a smaller insurer, offering
cover to lowincome consumers, whereas Sanlam offers this product to
medium to highincome consumers. However, in their merger documents,
the parties state that postmerger, Sanlam will crosssell its products to the
African Life client base. 4 It therefore appears that this differential according
to income level is likely to be eroded to some extent.
11. The merging parties assert that the relevant market is that for the provision
of individual policies on the one hand, and for the provision of group policies
on the other. 5 As in previous mergers, the Commission has raised the
argument of supply side substitution so as to justify a broader market for the
provision of longterm insurance. 6 The Commission asserts that since the
insurer is issued with a license to provide both group and/or individual
cover, it can render either type of cover.
12. It is accepted by the Commission that the merging parties’ products are
offered throughout South Africa and hence that the relevant geographical
market is national.
3 The parties describe individual products as insurance and investment products offered to individuals,
including but not limited to linked policies, life, sinking fund and health policies. Group products include
insurance and investment products offered to retirement funds and other groupings.
4 Record page 437
5 Record page 636
6 See Liberty Group Limited and Capital Holdings Limited – 04/LM/Jan05
13. Previously, in similar mergers involving this industry, we have not made a
definitive finding on the relevant market where it appears that no
competition concerns are raised. This is also the approach we adopt here. 7
Effect on Competition
14. Using data received from the Financial Services Board, the Commission
analysed the parties’ combined postmerger shares in the longterm
insurance market, for both individual and group business, based on net
premiums received, value of assets and value of liabilities. The resultant
market shares are set out below:
Basis of
market share
Sanlam
Life
Safrican African Life Total
Combined
Net Premiums
Received
12.09% 0.10% 0.99% 13.08%
Value of Assets 18.91% 0.01% 0.68% 19.60%
Value of
Liabilities
18.40% 0% 0.56% 18.96%
Source: FSB 2003 Report
15. On each basis of calculation of market shares, the target firm is adding less
than 2% to the merged entity’s share. The accretion in market share is
minimal.
16. Furthermore, there are a number of other competitors in this market. The
major players are Old Mutual, Liberty Group, Momentum Group, Investment
Solutions and Metropolitan. There is also a category entitled “other”,
accounting for between 17% and 30% of the market under each heading
used above to indicate market share.
Conclusion
We conclude that the merger will not lead to a substantial lessening or prevention
of competition. There are no public interest concerns which would alter this
conclusion.
The Tribunal therefore approves the transaction unconditionally.
__________
31 October 2005
7 See Liberty Group Limited and Capital Holdings Limited – 04/LM/Jan05
L. Reyburn Date
Concurring: M. Mokoena, T. Orleyn
For the merging parties: Jowell, Glyn and Marais Attorneys
For the Commission: O. Strydom, Mergers and Acquisitions